8.5 million student-loan borrowers get one more year with a company Elizabeth Warren says was 'caught lying to Congress about its atrocious record of fines and penalties'

• PHEAA, a student-loan company servicing 8.5 million borrowers, is extending its contract by a year.
• It first announced in July it was ending its federal loan servicing this year.

In July, the Pennsylvania Higher Education Assistance Agency (PHEAA) - a student-loan company that handles 8.5 million borrower accounts - announced it would be shutting down its federal loan services in December.

On Wednesday, though, the company reversed course, announcing an agreement with the Education Department to extend its contract by one year to allow more time to transition the borrowers to new student-loan companies.

A PHEAA spokesperson told Insider in August that although the company was planning to end its contract on December 14, it would continue to work with Federal Student Aid to "ensure a smooth transition for all borrowers beyond that date - for as long as it takes under the Department's direction." On Wednesday, the company said this extension will ensure all loans will be successfully transferred from PHEAA to other companies before the end of next year.

This extension will also allow more time to account for the Education Department's recent overhaul of the Public Service Loan Forgiveness (PSLF) program, which forgives student debt for public servants after ten years of qualifying payments. The new reforms include implementing a temporary waiver to allow borrowers to count payments from any federal-loan programs or repayment plans toward loan forgiveness through PSLF, including programs and plans that were not previously eligible.

Insider has previously reported on the significant administrative hurdles with transitioning millions of borrowers to new student-loan companies before the pandemic pause on payments lifts on February 1. Along with PHEAA, two other companies - Granite State Management and Resources and Navient - announced they would also be ending their federal loan services, impacting a combined 16 million borrowers.

But while PHEAA's extension may allow more time for borrowers to transition, it doesn't wipe its slate clean of treatment of borrowers. After the company first announced its plans to end federal servicing, Massachusetts Sen. Elizabeth Warren lauded the news, saying in a statement:

"Millions of loan borrowers can breathe a sigh of relief today knowing that their loans will no longer be managed by PHEAA, an organization that has robbed untold numbers of public servants of debt relief and was recently caught lying to Congress about its atrocious record of fines and penalties."

She was referring to an April hearing in which Warren and John Kennedy, the ranking member of the Senate economic policy subcommittee, asked CEOs of all the student-loan servicers in the country to testify on the influence of student debt on borrowers. PHEAA CEO James Steeley said the company had never been penalized for mismanagement of PSLF.

But weeks after the hearing, Warren and Kennedy sent a letter to Steeley regarding "what appear to be false and misleading" statements and cited nine Education Department reviews in their letter that suggested the company's mismanagement of the program had resulted in corrective action plans and two fines, each more than $100,000.

Warren also recently expressed concern that 16 million borrowers could be facing "millions of mistakes and problems" at the hands of new student-loan companies once payments restart, and she requested more information on how each of the companies will ensure "a smooth transfer of tens of millions of borrowers' accounts to new student loan servicers."